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Market Strategy 9/30/2019

  • John Stoltzfus
  • September 30, 2019

The Big Disconnect

The current environment calls for investors to separate the signal from the noise

Key Takeaways

  • This week marks the start of the fourth quarter of 2019 with equity markets in the US having regained much ground and even more from the depths of the fourth quarter losses of last year.
  • A host of challenges to the equity markets from geopolitical, domestic political, and economic concerns have so far failed to deter stocks from climbing the proverbial “wall of worry” in 2019.
  • In the week ahead investors will weigh impeachment risks as well as potential restrictions on capital flows that could further challenge global markets and economies as well as delay any potential resolution to the trade war.
  • Throughout the week important stateside economic data related to manufacturing, services, employment and wages will be released.

With the third quarter beyond “well into the home stretch” not a few investors are wondering “what’s next?” In our view 2019 hasn’t been such a bad year considering headlines that throughout have presented enough political and geopolitical mayhem and market noise to challenge the directions of the market.

As we stand poised to welcome in the final quarter of the year the Dow Jones Industrial Average, the S&P 500, the S&P 400 (mid-caps), the Russell 2000 (small caps) and the NASDAQ Composite (over 40% technology exposure) show respective year to date returns through last Friday of 14.97%, 18.15%, 15.62% and 19.67%.


From an international perspective, in the same time period major equity benchmarks that include MSCI EAFE (developed international equity markets not including the US and Canada), MSCI Emerging Markets, MSCI Frontier Markets and MSCI ACWI (all country world index including both developed and emerging equity markets) show respective gains of 10.22%, 3.7%, 6.93% and 14.06%. (All returns are priced in US dollars, which often subtracts from gross returns with the dollar as strong as it has been this year).

What are these benchmarks telling investors? In our view the message equity markets are broadly stating is that things simply aren’t as dire as the moment to moment news items that grab attention would appear to be.

Quotation from Aenean Pretium

Positive economic data and corporate results have provided enough offset to negative data points to justify what we call a “progress not perfection” market environment wherein stocks can gain enough traction to climb the “next hill” of the perennial “wall of worry.”

Irrational exuberance and animal spirits (when they’ve surfaced) have pretty much been relegated to a select group of IPOs and perhaps to a greater extent to Bitcoin leaving many of the major equity benchmarks to use this year as a space in time to recover much if not all of what was subtracted from stocks in last year’s fourth quarter “mugging”—wherein negative projections over the price of oil, economic slowing and the trade war drove a host of major benchmarks stateside and worldwide sharply lower.

In December of last year we forecast that 2019 would be a “do-over” year for the S&P 500 wherein the venerable benchmark would find its way back home to where it had been when it last peaked on September 20, 2018. As of Friday the S&P 500 stood at 2961.79 just 1.06% above its high for 2018 (2930.75) and off just 2.12% from its peak of 3025.86 on July 26th of this year.

For the most part positive economic data and corporate results have provided enough offset to negative data points to justify what we call a “progress not perfection” market environment wherein stocks can gain enough traction to climb the “next hill” of the perennial “wall of worry.”

Central bank monetary policy stateside which in our view has been remarkably successful at reading both weakness and strengths in the US economy over the past decade has contributed to an environment conducive to rewarding equites helped along by factors coming from innovation sparked by secular forces of globalization and technology and fiscal stimulus provided from tax reform and deregulation.

Much Ado in the Week Ahead

This week a “game on” atmosphere from Washington, DC to Beijing should likely work to steal a lot of investor focus based on a number of things that include:

  • The 70th anniversary celebration of the founding of the Peoples’ Republic of China that starts this week in Beijing on October 1;
  • Increased hostilities between protestors and police in Hong Kong over the past weekend;
  • Questions that abound about how seriously the administration might be in considering limiting US investor participation in China markets and the implications for institutional and private investors and the world markets;
  • The implications of the administration’s consideration of delisting of Chinese companies from US exchanges;
  • Weighing the threats of impeachment surrounding issues tied to Ukraine and the US President;
  • Possible escalation of trade tensions with China even as preparations are in progress for the next round of negotiations with China and as China opens its markets further to the world.

It’s an environment in which investors need to remain watchful and not miss the forest for the trees. Our experience reminds us that there never is an ideal time to invest. Heaven on earth is not a possibility. That said, wherever risk is found opportunity is often not far distant.

In the week ahead we plan to monitor the political and geopolitical but not lose focus on earnings reports leading up to when Q3 earnings season gets underway in earnest (when the big banks report) as well as on a host of economic data.

We maintain our overweight in US equities while keeping meaningful exposure to international equities favoring cyclical sectors over defensive sectors. 

John Stoltzfus of Oppenheimer Asset Managment Inc.

John Stoltzfus


Chief Investment Strategist, Oppenheimer Asset Management Inc.

John is one of the most popular faces around Oppenheimer: our clients have come to rely on his market recaps for timely analysis and a confident viewpoint on the road forward. He frequently lends his expertise to CNBC, Bloomberg, Fox Business, and other notable networks.

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